Correlation Between Energy Of and First National

Can any of the company-specific risk be diversified away by investing in both Energy Of and First National at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Energy Of and First National into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Energy of Minas and First National Energy, you can compare the effects of market volatilities on Energy Of and First National and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Energy Of with a short position of First National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Of and First National.

Diversification Opportunities for Energy Of and First National

0.44

Correlation Coefficient

Energy Of  First National

Very weak diversification

The 3 months correlation between Energy and First is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Energy of Minas and First National Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First National Energy and Energy Of is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Energy of Minas are associated (or correlated) with First National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First National Energy has no effect on the direction of Energy Of i.e., Energy Of and First National go up and down completely randomly.

Pair Corralation between Energy Of and First National

Assuming the 90 days horizon Energy of Minas is expected to under-perform the First National. But the stock apears to be less risky and, when comparing its historical volatility, Energy of Minas is 7.7 times less risky than First National. The stock trades about -0.02 of its potential returns per unit of risk. The First National Energy is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  64.00  in First National Energy on September 3, 2024 and sell it today you would lose (54.94) from holding First National Energy or give up 85.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Energy of Minas  vs.  First National Energy

Energy of Minas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy of Minas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Energy Of is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

First National Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First National Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, First National is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Energy Of and First National

The main advantage of trading using opposite Energy Of and First National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Of position performs unexpectedly, First National can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in First National will offset losses from the drop in First National's long position.

The idea behind Energy of Minas and First National Energy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.